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/ Legal Articles / The tort of deceit and clients’ interests

The tort of deceit and clients’ interests



Nicola Sharp of Rahman Ravelli examines the case of Barrowfen Properties Ltd v Patel & Ors [2020], which highlighted the challenge solicitors can face of representing a client’s best interests while following best practice.

In Barrowfen Properties Ltd v Patel & Ors [2020], the High Court has provided some important reminders about the conduct expected of solicitors regarding a claim for tort of deceit.

In this case, a strike out application was made by Stevens & Bolton, who were the second defendant. The strike out application referred to the claimant’s allegations of dishonest assistance, deceit, and unlawful means conspiracy. This was rejected by Mr Justice Birss, who stated that although the allegations were “very grave’’ they needed to be tested in court.

The outcome of the case illustrates the balance that has to be struck between acting in the best interests of a client while also following best practice.

The Case

The strike out application arose as the result of one of a number of claims that were brought in different jurisdictions by members of a wealthy family that has an extensive network of companies around the world. Barrowfen Properties Limited (Barrowfen) was the claimant. It forms part of the network of companies owned by the family. The first defendant, Girish Patel (Girish), is a member of the family and former director of Barrowfen. The second defendant, Stevens & Bolton, is a firm of solicitors that acted for the claimant at one time. The third defendant, Barrowfen II, is a company controlled by Girish.

The claim was an action for damages relating to what the claimant contended was an attempt by Girish to take or maintain sole personal control of Barrowfen so as to gain control of a valuable commercial property it owned. Barrowfen claimed that after attempts to take it over had been unsuccessful, Girish commenced a plan to acquire direct control of the property by putting the company into administration.

Barrowfen was indebted to Zurich Assurance for approximately £850,000, secured by a debenture. Girish set up a new company, Barrowfen II, and made representations that Barrowfen II was to take an assignment of the loan and debenture from Zurich to save Barrowfen from inevitable enforcement action by Zurich.

The central allegation at the hearing was that Stevens & Bolton misled Barrowfen’s other directors about the true purpose of the assignment; first in a letter dated 4 December 2015 and then at a meeting on 9 December 2015. Stevens & Bolton was accused of giving a deliberately misleading impression that the assignment had been taken in order to protect Barrowfen from enforcement of the loan and debenture when, in reality, the plan was for Barrowfen II to place Barrowfen into administration (the plan).

Stevens & Bolton were not acting for Barrowfen at that point but were acting for Girish and Barrowfen II. On 4 December 2015, Stevens & Bolton wrote a letter to the solicitors who acted on behalf of Barrowfen’s other directors (the letter) stating:

“…The Company [Barrowfen] was also threatened with enforcement action by Zurich, the first charge holder. However, that charge has been bought out and has been assigned to Barrowfen Properties II Limited so there is no immediate threat to wind up the Company from Zurich.”

A key part of the claimant’s case is based on the last sentence in that passage. The claimant avers that the letter does not mention the plan, which by then would have already been formulated and which Stevens & Bolton would have been well aware of. Therefore, the claimant claimed, in that context, Stevens & Bolton’s reassurance that there was no immediate threat to wind up the company from Zurich presented a deliberately misleading half-truth.

On 9 December 2015, and in response to the letter, a meeting took place between Girish, Stevens & Bolton and Prashant (another director of Barrowfen) to discuss a buy-out of Barrowfen shares by its shareholders in the event of a members voluntary liquidation having to be pursued. Towards the end of the meeting, Prashant asked if he could see the terms of the Zurich loan and asked, “whether there is a particular position as regards to this assignment”.

Stevens & Bolton replied “there was nothing in particular to tell Prashant about this, accept [sic] Zurich was pushing for payment...” and that “…the assignment of the loan was a measure taken to prevent Zurich from enforcing the loan, which it looked certain to do.” Despite the direct question about the terms of the Zurich loan and the assignment to Barrowfen II, the claimant claims Stevens & Bolton presented another deliberate misleading half-truth in an effort to conceal the plan.

Tort of deceit

Tort of deceit (sometimes known as fraudulent misrepresentation) is the actional wrong most closely identified with the civil law concept of fraud. In essence, tort provides a basis for a person who has been lied to or otherwise deliberately misled to seek redress for harm he or she has suffered as a consequence.

In order for a claimant to succeed in the tort of deceit, they have to be able to establish that:

  1. The defendant made representation which was false
  2. The defendant knew that the representation was made and that it was untrue, or was reckless as to its truth or falsity.
  3. The defendant intended that the representation would induce the claimant to act or refrain from acting.
  4. The claimant was in fact induced by the representation to act or refrain from acting
  5. The claimant thereby suffered a loss

Outcome of the Case

The judge struck out the allegations of dishonesty relating to the representations made in the letter of 4 December 2015 but refused to do so in relation to the representations made during the meeting on 9 December.

HHJ Birss said: “The writer of the letter was entitled to have in mind that the clients who would receive the letter would be advised by their own lawyers about it. An experienced lawyer acting for the recipient in this context might well have taken the fact that nothing was being said about what Barrowfen II might do as a hint, and replied with a direct question about Barrowfen II’s plans, but that does not turn the letter into a misrepresentation or a half-truth.”

Stevens & Bolton stressed that it owed no duty to Barrowfen at the time. But HHJ Birss described this as “irrelevant and potentially misleading”. It was explained that no-one is entitled to dishonestly and deliberately make a false representation to another person, intending that they rely on that to their detriment and - assuming they do rely on it - commit the tort of deceit but then attempt to excuse it on the ground that no duty was owed to their victim. While it might have been correct that Stevens & Bolton did not owe a duty to Barrowfen at the relevant time, they did owe them a duty not to practice deceit.

HHJ went on further to state “The fact a solicitor does not act for the questioner does not entitle them to give a knowingly misleading answer and practice a deceit. Honest approaches which were available included giving no answer at all or a full one.”

The claimant’s claim is to proceed to trial in early 2021.

Conclusion

This case shows the difficulties of acting in a client’s best interests while, at the same time, adhering to professional responsibilities. This is echoed by Birss J who acknowledged that “Legal representatives are often put in a difficult position when asked direct questions by their client’s rivals.”

While it can be difficult to maintain a balance between acting in the client’s best interest and doing what is considered “best practice”, as a legal professional, it is our duty to act with correct conduct to maintain public confidence.

Nicola Sharp

Nicola Sharp

Legal Director

nicola.sharp@rahmanravelli.co.uk
+44 (0)203 910 4567 vCard

Specialist Areas of Practice: International Regulation and Corporate Crime, Fraud and Business Crime, Civil Fraud, Corporate Investigations

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